It is a pleasure to be among such a distinguished group of
international regulators and industry participants and to speak at the
meeting of the Futures Industry Association and the Futures and
Options Association. Sweeping change is occurring in the world's
financial markets and in the efforts to oversee them. I would like to
address two particular issues this change poses: first, the
significant changes in financial regulation that a number of
jurisdictions are currently considering or undertaking; and second,
the changing nature of international regulatory cooperation.

We meet at a time of great change in financial services regulation in
several countries with major markets. The U.K. has just announced very
significant changes to its financial regulatory structure. The U.S.
and other countries such as Japan and Australia are actively
considering how best to restructure and to modernize their regulation
of financial services. In addition, numerous emerging market
jurisdictions are considering how best to regulate newly created
markets in their countries.

The discussions of change should not be viewed as an indictment of the
existing systems of regulation in our countries. Rather, the proposals
for regulatory change reflect an attempt to respond to significant
changes in the businesses and markets being regulated. If regulators
are not responsive to technological developments, business changes and
market evolution, we will have failed in maintaining an effective
regulatory system and will burden innovation and financial market
growth with regulatory inefficiencies and outmoded regulatory
structures.

We are all well aware of the forces that are driving this process of
regulatory reevaluation and change -- the globalization of our
markets, integrated trading activities and risk-management needs of
globally active market users and market intermediaries, technology
changes of the information age and the increasing pace of market
innovation. Moreover, market crises -- such as the 1989 Chicago sting
operation, the London tin crisis, the stock market crash of 1987, and
the massive losses of Barings Plc. and Sumitomo Corporation to name a
few -- have been catalysts for regulatory change.

Although they have chosen different paths to reform, policymakers in
various countries are trying to respond to the changes taking place in
the markets. In the U.K., the 1985 White Paper on Financial Services
increased access to U.K. markets and led to the enactment of the 1986
Financial Services Act establishing a "two-tier" regulatory
and self-regulatory framework. Last month, the U.K. initiated radical
market reforms to integrate into one entity -- the Securities and
Investments Board -- the supervision of banks, securities firms and
insurance companies and the functions of many self-regulatory
organizations. Thus, in a relatively short time frame -- from 1985 to
1997 -- the UK has moved to a single, all-embracing financial
regulator.

In contrast to the UK's unitary approach, the Wallis Committee in
Australia has recommended the creation of a "risk- based"
regulatory model with three separate agencies: a market conduct and
disclosure regulator, a prudential regulator of financial entities and
intermediaries, and a Payments Systems Board with the Bank of
Australia to implement policies to improve payments system efficiency
and to oversee clearing streams.

Japan announced reform measures last year intended to enhance the
Tokyo market in its role as one of the "big three" financial
centers in the world, along with London and New York. Japan is
increasing access to its markets, expanding the range of permissible
investments, opening up competition by financial intermediaries by
liberalizing commission structures, and improving oversight of
securities firms. The Ministry of Finance has been working with the
Tokyo Stock Exchange and the Osaka Stock Exchange to enhance customer
fund protection and to move toward a system of fund segregation
already in place in the commodity markets. These reforms, however,
will not affect the product-based approach to regulatory
responsibilities under the current Japanese structure.

In the United States, we too are considering changes in our financial
services regulatory structure. One major question is whether and to
what extent we should maintain the Glass-Steagall Act's
traditional separation of banking and securities functions. Last
month, the Clinton Administration proposed an overhaul of the
Act's restrictions that would permit banks to venture directly
into the securities area and also raised the possibility of permitting
banks to conduct non-financial businesses, subject to certain
limitations.

At the Commodity Futures Trading Commission we have been examining our
regulations to determine whether they are unduly burdensome or require
updating. This effort has already resulted in some significant
streamlining in the way we regulate our markets. For example, we
recently created a "fast track" process by which our
exchanges may obtain CFTC approval of new contracts on an expedited
basis. Certain contracts may now be approved within 10 days and others
within 45 days. This development exemplifies the type of regulatory
reform that many nations are currently undertaking: on the one hand,
it reduces regulatory burdens on our exchanges and other regulated
entities; on the other hand, it preserves important public interests
and fulfills the Commission's oversight responsibilities.

Also, I am pleased to announce that yesterday the CFTC opened the way
for futures brokers to make use of electronic media in communicating
with their customers. The Commission's new guidance permits
futures brokers to deliver monthly statements, trade confirmations and
other account statements solely by electronic media to customers who
consent to electronic transmission in lieu of receiving paper
documents. It is time to recognize that the Internet and other forms
of electronic communication may perform these functions as well as or
better than the U.S. mail. This step should increase the timeliness of
information flows and benefit brokers as well as customers by enabling
them to reduce their administrative costs. This initiative is only the
most recent of a series of actions by the Commission to assure that
our regulatory program, the regulated industry, and futures customers
reap the benefits of technologi cal advances.

There is also legislation pending before our Congress to amend the
Commodity Exchange Act, the law governing futures and option trading
in the U.S. These bills could have a wide-ranging impact on our
exchange-traded and over-the-counter derivatives markets. The
Commission strongly opposes certain of the proposals contained in this
legislation. There are three areas in particular in which the bills
could dramatically reduce federal government oversight of our markets
and, in my view could expose these markets to unnecessary risks:

First, the bills contain a provision exempting so- called
professional futures exchange markets from nearly all federal
oversight as long as exchange trading is limited to entities with
$1 million or more of net worth. The deregulation of exchange
trading possible under this exemption would greatly restrict
government power to prevent and to detect manipulation, fraud, and
financial instability in these markets.

Second, the proposed legislation would exempt most trading in
futures and options on foreign currency and government securities
on the over-the-counter market and on exchange markets as long as
they excluded some element of the general public. Such trading
would be free from all federal regulation and customer protections.

Third, the proposed legislation would create statutory exemptions
from most of the Commodity Exchange Act's protections for all
over-the-counter derivatives trading among entities with at least
$1 million of net worth. Prohibitions against fraud and
manipulation would be preserved.

These three provisions in the pending legislation could have a
significant negative impact on the integrity of our financial markets.
The CFTC is committed to working with Congress, the futures industry
and all financial market participants to craft legislation that
modernizes the Commodity Exchange Act, but at the same time protects
the public interest and the integrity of our markets.

Regardless of the path taken by particular regulatory reform efforts
-- whether the UK's unitary approach, the risk-based reforms in
Australia, or the continuing product-based regulation in Japan -- each
country is assessing the appropriate level and methods of regulation
based on changed local and global conditions. Over time, countries
have developed different regulatory schemes to ensure that markets
operate effectively, free from manipulation and fraud, and that
customers are treated fairly. Not surprisingly, therefore, the
eventual regulatory reforms adopted in each country may vary,
depending on such factors as each nation's history, culture, legal
customs, and the needs of its markets.

It is too early to make any pronouncements as to which of these reform
efforts will be implemented and will prove successful in responding to
current developments in the global marketplace. However, reform will
not succeed unless it has as its central mission the protection of the
investing public and the preservation of market integrity. In order to
achieve these goals, policymakers and regulators must ensure that they
take into account the interests and views not only of regulated
entities such as the markets and financial services intermediaries,
but also the interests and views of the users of the markets and the
public at large.

No matter what approach each jurisdiction takes to the reform of
regulation in its domestic markets, international cooperation and
coordination must continue to move forward. Cooperation by national
regulators in an increasingly global financial environment is not an
option; it is a necessity. In this regard, the Commission is
particularly pleased with the close cooperative relationship
established between the US and the UK regulators.

The failure of Barings Plc., followed in quick succession by the
dramatic losses incurred in Sumitomo Corporation's copper trading,
are two recent dramatic events demonstrating the complexity and
interrelationship of financial supervision in a global marketplace.
Markets today are linked through products and market participants.
Events in one market can and do create regulatory concerns in multiple
jurisdictions.

In a global market environment, the effective supervision of futures
markets requires that regulatory authorities cooperate by sharing
relevant supervisory information. In a world of multinational
financial firms, it is unlikely that any one regulator will have the
ability and resources adequately to supervise all the participants in
its markets. Moreover, the likelihood of repercussions from
disruptions in other jurisdictions has accelerated the need for and
extent of international cooperation.

International regulatory cooperation has evolved to accommodate the
changing regulatory and commercial landscape. In the 1970's
regulators concentrated on addressing fraudulent activities occurring
on a cross-border basis. Consequently, early efforts focused on
entering bilateral memoranda of understanding or nonbinding statements
of intent to cooperate in enforcement cases.

These initial efforts proved remarkably successful. A recent check of
an IOSCO database on the Internet indicated the existence of over 224
bilateral arrangements involving 50 jurisdictions. These arrangements
have proven extremely useful. For example, in fiscal year 1996 there
were approximately 190 instances in which the CFTC requested
information from a foreign regulator and 65 instances in which a
foreign regulator requested information from us.

The recent market events involving Barings and Sumitomo forced
regulators to move beyond cooperation in the enforcement area in order
to protect their domestic financial marketplace against shocks or
stress on the system caused by extraterritorial events. Barings gave
birth to the March 1996 Declaration on Cooperation and Supervision,
which has been signed by 20 regulators to date, and its companion
agreement among self- regulatory organizations, which has been
executed by 62 exchanges and clearinghouses.

Following the Sumitomo incident, the CFTC and the SIB, along with the
relevant Japanese authorities, the Ministry of International Trade and
Industry and the Ministry of Agriculture, Forestry and Fisheries,
co-sponsored an international regulators conference in London in
November 1996 on physical delivery markets. The conference focused on
the special problems that physical delivery markets pose for contract
design, market surveillance and international information sharing. The
17 countries participating issued a Communiqué agreeing on
certain basic principles of regulation and on a year-long work
program. Earlier today, the London conference co-chairs reported on
the progress to date and released the results of our survey describing
current regulatory practices in the participating countries. We are
working toward the development of international "best
practices" standards in contract design, market surveillance and
information sharing to be released at a meeting in October 1997 in
Tokyo.

These efforts demonstrate the commitment of regulators from around the
world to cooperate. By creating international best practices
standards, we will establish world-wide regulatory benchmarks, which
can help each domestic regulator to assess how its standards and
practices compare with the benchmarks and to consider possible
regulatory improvements.

International regulators are also working to ensure that information
sharing will occur quickly and efficiently. The Sumitomo incident
provided the first concrete test of the information sharing
arrangements in the March 1996 Declaration. The Declaration's
information sharing arrangements worked, but they could have worked
more efficiently. Given the competition between the London and New
York copper markets, it is not surprising that invocation of the
Declaration's information- sharing provisions initially raised
questions whether the inquiries were motivated by competitive reasons
rather than supervisory concerns. Moreover, time was spent in
discussion of the scope of information legitimately necessary.

To address these problems, the CFTC and the SIB jointly proposed to
the IOSCO Technical Committee a project to provide guidance on the
types of information which may need to be shared in a particular
market event. The market events to be covered include a firm financial
crisis such as Barings, a major market move such as the 1987 stock
market crash, and price distortions or unusual volatility in a
particular market, such as the Sumitomo situation. Agreeing in advance
upon the type of information which may be required should facilitate
information- sharing when such an event occurs. IOSCO is also
concluding a round of self-assessments by participating jurisdictions
of the usefulness of these information-sharing arrangements.

The implementation of the Declaration and the London Communiqué
bring me to my last topic for this afternoon, the growing need and
trend toward regulatory convergence. We have learned that information
sharing arrangements are futile if needed information is not available
in the first instance. For example, some markets do not generate
information on large exposures. In other cases customer position
information may be obtained by market authorities but not shared with
other regulators due to blocking, financial privacy, or secrecy laws.
As international cooperation continues to increase in response to
market factors, a certain degree of regulatory standardization will be
inevitable and beneficial. All jurisdictions that wish to obtain
information from their fellow regulators will need to generate and
share similar information with those regulators.

Moreover, the need to streamline burdensome regulatory requirements
will also play an important role in harmonizing regulatory schemes.
The US and the UK, for example, have approved a generic risk
disclosure statement, which can be used by participants in either
jurisdiction. Indeed, the multinational participants in our markets
require and deserve international regulatory harmonization to
facilitate their business operations and to reduce the burdens of
conforming to many differing national regulatory schemes.
International regulators have a responsibility not only to streamline
and modernize our domestic regulatory programs, but also actively to
pursue the elimination of unnecessarily regulatory divergence on an
international level.

Obviously, financial regulation will not reach a level of complete
global harmonization any time soon. Very different regulatory
approaches have led to equally successful results, and no one system
will work in all jurisdictions. Regulatory diversity within a
framework of internationally accepted parameters may well enhance
regulatory innovation and tend to foster experimentation leading to
improved supervision and reduced regulatory costs.

Times of change are also times of challenge. Although regulatory
change in the United States and internationally is necessary to keep
up with changes in the marketplace, our true challenge is to reform
regulation while preserving the important interests in market
integrity and customer protection that have been the foundation for
our regulatory schemes. We must build upon the regulatory foundations
that have served us well in the past to develop modernized regulatory
regimes to take us into the Twenty-first Century.